INDIA INSIGHTS

Issue 2 - 2013

Dear All, It is my pleasure to introduce the second edition of India Insights! The theme of this edition of our newsletter is employee health and benets. Organizations around the world are facing the challenges of rising healthcare costs - and India is no different. The demand on employee performance and engagement, and the competition for skilled labor is stronger than ever before. Employers are increasingly searching for innovative ways to manage the health and wellness of their employees to control costs without sacricing employee productivity. A properly structured benets package is important both as a recruitment and as a retention tool. The types of employee benets that are prevalent in India are outlined in the following pages. We also present the highlights from our 7th Annual Employee Health & Benets Study. In this edition we demystify benet costs and analyze the principal cost drivers of employee benets. There has also been signicant activity on the regulatory front with the Insurance Regulatory and Development Authority (IRDA), revamping health insurance regulations. We have endeavored to showcase the principal issues around employee health and benets in the newsletter and hope you nd this a valuable read. Regards, Sanjay Kedia

Regards, Sanjay Kedia Country Head & CEO Marsh India

Indian Insurance Timeline

Triton Ins.Co.Ltd. Indian Companies Mercantile Ins.Act Passed Act Ins.Ltd Independence

In the News IMPACT OF NEW HEALTH INSURANCE NORMS

IRDA revamped health insurance regulations last month. The new regulations have tried to plug the various loopholes to ensure speedy and fair settlement of claims for customers and also bring in legal clarity among the relationships between stakeholders, including customers, insurance companies, TPAs and hospitals. The likely impact of these regulations on hospitals will be signicant. The new regulations have clearly listed 199 exclusions in addition to stating the expenses that will not be paid by the insurer. Therefore, hospitals will now have more clarity on which expenses will be paid and which will not be paid. Also, the regulations state that the insurers will have to enter into direct agreements with hospitals or could enter into a tripartite agreement between insurer, hospital and TPA. This would slow medical ination as the regulations mandate that the hospitals agree on charges with insurers. The new regulations are also likely to revive the sagging interest of top hospitals in getting insured patients, since insurers will now have to settle claims within seven days. Hospitals will also have to change their software/systems as billing will be standardised.
Source: Financial Chronicle , 22nd March 2013

1850

1866

1907

1938

194

7
19 50

Ins.Act amended to set up Tariff Committee

Colonial Era

Nationlisation Era
IRDA Act passed Licences granted to private insurer

Section64(V) (B) introduced-invoking Cash Before Cover (C.O.D.)

20

00

1999

1994

19

72

Malhotra Committee submits report, privatisation recommended

1968

General Ins.in India fully nationalised

IRDA (Ins. Brokers) Regulations, 2002

2002
200 3

13 non life insurer incl 8 private (Most with foreign partners)

20

Detariffication Phase rate only. Wordings as per Tariff

07

Liberalisation Era
2008
2009
Policy wordings exibility with le and use add-on covers

2012

to date

Complete rate/ pricing freedom

Minimum 27 non life insurer and rates for 24 life insurer Natural Catastrophe Perils mooted by Ins.Market

Employee Health and Benet Insurance

India is among the top ve markets in Asia by premium value, in addition to Japan, Korea, China and Taiwan. The country is geographically large and has the worlds second largest population, which is in excess of 1.15 billion. However, it also has one of the lowest penetration rates for insurance in Asia, in terms of premium as a percentage of GDP. This situation reects the fact that Indias insurance market is still in its infancy. Against the backdrop of rising income levels, insurers operating presently in the deregulated environment will be able to expand product lines to cater to the demand for more customized and sophisticated risk solutions. Private insurers will continue to capture market share at the expense of public enterprises through a mix of aggressive distribution , service and price. Furthermore, the number of private insurers is expected to grow as various foreign companies have announced intentions to establish joint ventures in India. Given the low level of penetration in some segments, this trend towards foreign participation is likely to continue. The Indian insurance sector is rapidly moving towards international standards of free (risk-based) market pricing and innovative product offerings. Big changes have occurred over the last decade, during which the sector was opened to private participation, but with foreign direct investment (FDI) capped at 26%. The number of insurers in the private sector will keep growing, as major foreign players see opportunities to increase both volumes and types of products. With the possibility of lifting of the ceiling on foreign ownership to 49%, the capacities of domestic partners would no longer constrain capital levels for joint ventures. Until 2000, the general insurance sector had only four public sector players, formed after the nationalization of 107 general insurers, which are Oriental Insurance Company of India (OIC), National Insurance Company of India (NIC), New India Assurance Company of India (NIA) and United Insurance Company of India (UII). These state-owned insurers primarily focused on their immediate regions. Currently, a total of 23 additional carriers are licensed to conduct the business of general insurance in 2013. Many global giants including Allianz, Bupa, Lombard, Generali, ERGO, Axa and Liberty Mutual have a presence in India through Joint Ventures. The health insurance business in India has witnessed increased focus and attention from all stakeholders, including insurers, IRDA and healthcare providers and other entities associated with the healthcare sector. This increasing attention and awareness is due to rising healthcare costs. Recent de-tariffing of the general insurance business forced insurance companies to focus on health insurance and other personal lines of business. Rationalization of premium rates in respect of individual mediclaim policies in 2007, which were unrevised for many years, and an upward revision of rates in all group health policies have also contributed to growth in health insurance premiums. Availability of products for senior citizens and children has also helped in popularizing health insurance.

Employee Health & Benets: Overview

Employee Health & Benets

Insurance

Retirement Solutions

Accident

Mediclaim

Life

Provident Fund Gratuity

Superannuation

Marsh Indias Domain

Employee Insurance Coverage in India:

Source: Primary Market Research: 7th Annual Employee Health & Benets Study conducted by Marsh India. Below are the three main voluntary lines of employee insurance prevalent amidst MNCs in India.

Product
Group Health Insurance

Coverage
Covers hospitalisation, day care procedures & OPD. . Typically covers Employee, Spouse & 2 Children with an option to cover Parents. Median Sum Insured: INR 300,000 Covers disability & medical expenses incurred due to an accident. Median Sum Insured: 3 times CTC Covers death caused by accident or natural causes. Median Sum Insured: 2 times CTC

Prevalence
100%

Group Personal Accident

90%

Group Term Life

70%

Marsh India 7th Annual Employee Health & Benets Study Highlights:
Earlier this year, Marsh India published its 7th Annual Employee Health & Benets Study, detailing benets prevalence in India. In the study, we found that 85% of the surveyed organizations have made at least one change to their benets plan design in the last two years to combat rising medical insurance costs. Nearly 28% of employers still continue with a claims ratio in excess of 100%, and 54% of employers stated that health insurance costs will continue to increase by double digits over the next three years. The claim cost per life has risen by 92% in the past ve years, which is an annual average compound medical ination rate of just over 18%. 90% of employers have adopted some form of cost containment measures in their benets plan. In the next three years: 14% are likely to introduce cost containment measures for parental coverage. 11% are likely to relook at room rent restrictions. 7% are likely to introduce ailment caps/sub-limits. 5% are likely to pursue TPAs for package rates/pre-dened taris. 4% are likely to implement a preferred provider network (PPN). An increasing number of employers today (84%) want to provide choice to their employees in the form of exible benets, voluntary top-up plans and keyman insurance. IRDA has made some changes in areas like: Streamlining pre-authorization and claims form, and making it IT and systems driven. Streamlined minimum service level agreements for third party administrators, insurers and service providers. They have specied 11 standardised critical illnesses making them uniform across the industry. The basic exclusions (199 items) have been standardised and communicated. All these guidelines will come in to effect on 1 July 2013.

Summary of recent events & trends:

Other Statuatory Forms of Employee Bents Insurance:
EDLI: This applies to all employers who have an Employee's Provident Fund, there is a statutory requirement to subscribe to the Employee's Deposit Linked Insurance Scheme, 1976 to provide for the benet of life insurance to all their employees. If you would like to take a different route, the employer may be exempted from contributing to this scheme, if he/she has provided for better insurance benets through alternative scheme. A group term life insurance scheme in lieu of EDLI has been accepted as one such better alternative. ESIC: The Employees State Insurance Scheme of India is a multidimensional social security system tailored to provide socio-economic protection to the worker population and their dependants covered under the scheme. The Act is applicable to factories employing 10 or more persons irrespective of whether power is used in the process of manufacturing or not. The existing upper end of wage-limit for coverage under the Act, is INR 15,000/- per month. Workmen Compensation: This insurance protects the employer from the liability which may arise because personal injury to an employee caused to them by accidents arising out of and in the course of their employment. Organizational review of policies and processes: A shift from long-term to short-term and commuter (employees spending extended periods in-country without relocating) assignments requires that policies and processes be amended. Global mobility coordination: Integrating policies and practices into a formalised program requires a global governance structure while recognising local country legislation. Signicant variation in benet solutions: As companies expand into new growth markets, the range of benet programs also expands. Financial and time resource constraints: Organizations need to consider and track the cost, effectiveness and suitability of the benets they offer when setting up global mobility programs. Potential duplication of cost and benet cover: Benets need to be designed in the context of home and host country requirements to avoid redundant coverage. Impact on local employee perceptions: Given the differences in benet provision between expats and local employees, it is important to keep the latter motivated. Identifying the right solution: Customising benets, choosing the right insurance carrier and the benet approach is critical. In some circumstances, offering benets through a local / host country benet plans may be more appropriate than a global approach. TYPICAL SOLUTIONS THAT WE OFFER: Group international medical: Coverage for two or more employees on long-term assignment, including-dental, vision, life, and other options Accident and life: International insurance for expatriate employees, persons on short-term assignments, international exchange program participants, and other special situations Travel plans: Short-term accident and illness coverage for employees on business trips or assignments outside their home country

KEY CHALLENGES FACED BY EMPLOYERS WITH A GLOBALLY MOBILE WORKFORCE:

Global mobility: As companies increasingly rely on a mobile workforce, they face the challenge to manage benets on a global scale. Global benets management is an area experiencing rapidly growing demand from a large number of businesses housed in and out of India. Even though, expatriates represent a small proportion of workforce, the time and resources involved in managing them can be immense. If managed effectively, expatriate benets can generate tremendous advantages by transferring cross-border knowledge, leveraging local investments and providing career development opportunities. The risk of not getting it right can be high as well.

Health Regulations 2013 Ushering customer friendly standards A snapshot

IRDA nalized health insurance standards to address consumer issues in health and benets, and these come into effect on October 1, 2013. Customer friendly initiatives have been the main stay of these regulations. Delayed claim settlement to attract interest and rejection of claims cannot be done without a proper medical reason. The insurance company, not the TPA, has the responsibility of settling or rejecting claims. TPAs can only process claims. Lifetime health cover has been made mandatory and the entry age limit has been enhanced to 65 years. A free look period of 15 days from policy issue to evaluate policy terms and portability of cover whereby the customer can shift his policy without loss of benets accumulated, has brought power to the hands of customer. Rationalisation of claims loading, no claim bonus preservation, grace period of 30 days for benets continuity on renewal delay, non allopathic treatments being allowed in recognized institutions has enhanced consumer protection in critical areas. Hosptialization bill reimbursement has been a major area of contention as to what is allowed and what is not . In these new regulations a list of 199 hospitlization expense items has been listed as not payable. Until now, the interpretation of these excluded items has been at the mercy of stakeholders and standardising has ensured clarity. However, insurers that wish to include these as part of the hospitalization expenses in their product design are free to do so thereby giving the customer an informed option. Policy terms have been standardized with the denitions being prescribed for the 45 most common terms used in health insurance such as day care treatment, hospital, inpatient care, pre-existing disease-aimed at removing ambiguity around interpretation by various stakeholders. 11 critical illnesses that are covered under various policies now have standard denitions which brings clarity and will eliminate disappointment at the claims stage on the coverage norms and exclusions under each critical illness hitherto suffered. Standardization of forms has been yet another step towards eliminating confusion. Standard pre-authorisation (for cashless claims) and claims forms signicantly streamlines processes at every stage. Being implemented in an optical character recognition (OCR) format facilitates the portability of data from paper to IT systems eliminating data entry issues. This ensures quicker turnaround times and swifter claim settlements.

India Fact Sheet

Country Information
Capital Population (bn) National Currency GDP (USD Trillion) GDP growth rate 2012-2013 Preferred Business Language 2012 -13 Premium in Crs. 10,036 9,300 9,156 6,544 6,134 4,000 2,570 2,453 2,010 2,135 1,561 1,621 1,541 1,105 1,190 534 771 182 21 95 2 New Delhi 1.2 Rupee (INR) 1.8 At Exchange Rate & 4.7 At PPP 5% English 2012 -13 Premium in USD Millions 1,825 1,691 1,665 1,190 1,115 727 467 446 365 388 284 295 280 201 216 97 140 33 4 17 0 Solvency Ratio ( as on March 2012) 2.03 2.71 1.37 1.38 1.36 1.56 1.22 1.57 1.39 1.40 1.36 1.33 0.92 1.69 2.18 2.95 10.23 2.41 3.77 Business line On Shore Property Construction / Engineering Offshore Energy (Combined single limit) Liability Casualty Marine (Hull) Marine (Cargo) Aviation (Hull) Aviation (Liability) Compulsory Insurances 1. Auto Liability - Motor Third Party Liability 2. Public Liability (Act) cover - Third Party liability for Industry/Persons handling hazardous materials. 3. Professional indemnity for insurance brokers and mutual fund managers. 4. Aviation carriers liability. Workers (Employee) Compensation in India is a statutory liability but not a statutory insurance requirement Reinsurance Framework in India GIC Re is the national Reinsurer 5% Obligatory cession to national reinsurer ( for all lines ) A reinsurer should have a minimum credit rating of BBB ( S&P ) or an equivalent for facultative reinsurance. Limits allowed based on rating is as follows
Rating of Reinsurers (as per Standard & Poor and applicable to other equivalent international rating agencies) BBB of Standard & Poor Greater than BBB and upto & including AA of Standard & Poor Greater than AA upto & including AAA of Standard & Poor Limit of cession allowed under Regulation 3(11) 10% 15% 20%

Insurer New India United India National Oriental ICICI-lombard Bajaj Allianz IFFCO-Tokio HDFC ERGO General Reliance General Tata-AIG Royal Sundaram Cholamandalam Shriram General Future Generali Bharti AXA General Universal Sompo SBI General L&T General Raheja QBE Magma HDI Liberty Videocon

Many global reinsurers like Swiss Re , Munich Re , Hannover Re have representative offie in India ( But not registered reinsurers ) Insurance regulator encourages use of local insurance market capacities before reinsurance outside India Combined Indian Insurance Market Capacity Total Capacity in US Dollars USD 1.27 Billion USD 1.03 Billion USD 55 Million (SumInsuredbasis) USD 125 Million USD 150 Million USD 80 Million USD 176 Million USD 55 Million USD 250 Million

General Insurance Market Trends - Forward Prognosis 10.10 Line of Business General Liability Rate Fluctuation Expected in Q1 2013 Decrease 0% to 10% Increase 10% to 20% Decrease 0% to 10% Increase 10% to 20% Decrease 0% to 10% Stable -5% to +5% Stable -5% to +5% Increase 0% to 10% Decrease 0% to 10% Stable -5% to +5% Motor 41% EB (Health & PA) 25% Fire & Engineering (Property) 14%
Motor 41% Fire & Engineering (Property) 14%

Specialised Institutions:
1.Credit Insurance ECGC 2.Health Insurance Star Health & Allied Insurance Apollo MUNICH Max BUPA 3.Agriculture Insurance AIC Grand Total Reinsurer 1. GIC 1,085 476 99 2,577 59,820 197 87 18 469 10,876 1.59 1.66 1.59 1.91 3.18 1,005 183

Motor / Auto Workers' Compensation / Employers' Liability Property: Catastrophe Exposed Property: Non-Catastrophe Exposed Directors and Officers Liability Professional Liability Marine Cargo Employee Benets: Health Employee Benets: Accident and Health

Note: Minimum prescribed solvency margin by IRDA is 1.5, however the same is relaxed to 1.3 for the year 2012 by IRDA

Insurance Market Information (March 2012)

Estimated Non Life Market Size Insurance Penetration (Non Life) Insurance Penetration (Life) Growth rate of Non-Life Insurance market (2012-13) Number of Non Life Insurance Companies Number of Monoline/Specialist Insurers Number of Life Insurance Companies Number of Reinsurance Companies USD 10.80 bn 0.70% 3.40% 19.00% 21 6 24 1

Liability 2% Miscellaneous (others) 12% Marine 5%

Aviation 1%

Marine 5% Miscellaneous (others) 12% Liability 2%

EB (Health &PA) 25%

Aviation 1%

Delhi

Ahmedabad

Kolkata

Country Head & CEO Contact : Sanjay Kedia Telephone : +91 (22) 66512900 Fax : +91 (22) 66512901 Head Office Marsh India Insurance Brokers Pvt Ltd, 1201-02, Tower 2, One Indiabulls Centre, Jupiter Mills Compound, 841, Senapati Bapat Marg, Elphinstone Road (W) Mumbai- 400 013 Branch Office Pune Telephone : +91 (20) 40147711 Fax : +91(20) 40147576 Hyderabad Telephone : +91 (40) 44334040 Fax : +91(40) 44334444 Kolkata Telephone : +91 (33) 39845248 Fax : +91(33) 39845212 Contact Details : Editorial Team Sudhish Ramteke (MCS Leader India) sudhish.ramteke@marsh.com (91) 22 66512945 Saurabh Bansal (MCS Knowledge Champion) saurabh.bansal1@marsh.com (91) 22 67499561 Savita Rai (MCS Process Champion) savita.rai@marsh.com (91)22 67499538 Bangalore Telephone : +91 (80) 41857800 Fax : +91(80) 41857801 Chennai Telephone : +91 (44) 43486969 Fax : +91(44) 43486965 Delhi Telephone : +91 (124) 4049200 Fax : +91(124) 4049201 Ahmedabad Telephone : +91 (79) 40040000 Fax : +91(79) 26443177
Mumbai Pune Hyderabad

Bangalore Chennai

The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such. Insureds should consult their insurance and legal advisors with respect to individual coverage issues. This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh India Insurance brokers Pvt Ltd, Copyright 2013 Marsh India Insurance Brokers Pvt Ltd All rights reserved